Forecasting the Volatility of Energy Transition Metals

Andrea Bastianin, Xiao Li and Luqman Shamsudin
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Xiao Li: Department of Economics, Management, and Quantitative Methods, University of Milan; Fondazione Eni Enrico Mattei and University of Pavia
Luqman Shamsudin: Fondazione Eni Enrico Mattei and Department of Environmental Science and Policy, University of Milan

No 2025.04, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The transition to a cleaner energy mix, essential for achieving net-zero greenhouse gas emissions by 2050, will significantly increase demand for metals critical to renewable energy technologies. Energy Transition Metals (ETMs), including copper, lithium, nickel, cobalt, and rare earth elements, are indispensable for renewable energy generation and the electrification of global economies. However, their markets are characterized by high price volatility due to supply concentration, low substitutability, and limited price elasticity. This paper provides a comprehensive analysis of the price volatility of ETMs, a subset of Critical Raw Materials (CRMs). Using a combination of exploratory data analysis, data reduction, and visualization methods, we identify key features for accurate point and density forecasts. We evaluate various volatility models, including Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and Stochastic Volatility (SV) models, to determine their forecasting performance. Our findings reveal significant heterogeneity in ETM volatility patterns, which challenge standard groupings by data providers and geological classifications. The results contribute to the literature on CRM economics and commodity volatility, offering novel insights into the complex dynamics of ETM markets and the modeling of their returns and volatilities.

Keywords: Critical Raw Materials; Energy Transition; Features; Volatility; Forecasting; Density forecasts (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 Q02 Q30 Q42 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-for
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Related works:
Working Paper: Forecasting the Volatility of Energy Transition Metals (2025)
Working Paper: Forecasting the Volatility of Energy Transition Metals (2025)
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